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Thursday, January 14, 2010

"The president is proposing a levy of 15 basis points, or 0.15 percent, on the liabilities of large financial institutions. The tax, which officials are calling a "financial crisis responsibility fee," would apply only to financial companies with assets of more than $50 billion. Those firms — estimated to amount to about 50 institutions — would have to pay the fee even though many did not accept any taxpayer assistance and most others already paid back the government lent to them."

I like the first part - the basic idea that 'we want our money back' by X point in time. That is reasonable for the reasons the President cited alone. This was supposed to be loan money anyway - it SHOULD be paid back at such point in time that banks have recovered sufficiently to do so.

What I don't like is the second part - the fact that this tax could/would be levied even on those banks that have already repaid the loan or even on those that didn't seek government assistance. I think that would set a dangerous precedent that a huge tax could all of a sudden be levied on banks regardless of whether or not they are 'good' banks or 'bad' banks. We shouldn't tax all large financial institutions, since at least some of them did not heavily engage in damaging lending. Put the tax where the damage came from and where our money is still owed.

I also don't like that GM, who I argue shouldn't have received any direct financial assistance in the first place short of helping an orderly bankruptcy, gets off Scott-free in this. That was a supposedly temporary government takeover of ownership. If/when the finally dumps its shares of GM this year, we should recoup all of our money with interest. If not, we need to try to get ours.

Garth Brazelton

About Me

I work for the Indiana Economic Development Corporation as the Director of Operations and Business Systems, and I teach macroeconomics at Indiana University (Indianapolis). Previously, I was an Economist at the US DOT in Cambridge, MA. This blog does not represent the opinions of any of these organizations.